The availability of credit impacts the real estate even more than the interest rates do. After all, a low interest rate is not of much use if only a small portion of potential home buyers can qualify for it…
Back in the rolling 2005-2006 years credit was plentiful and 100% and even 110% financing was available to anyone with a pulse. After the market peaked sometimes in 2006, prices rapidly started declining with foreclosures soaring in the following years.
The correlations were complex and many, but the result was that a “conventional” loan went from being a 100% financing without mortgage insurance back to the historically normal 80% financing requiring a 20% down payment. this created big problems for first time home buyers that now had to wait years before being able to afford a home (traditionally, this is how homes were bought so some may be rolling their eyes.)
As “conventional” financing declined, FHA and VA woke up from a long sleep and got more and more prevalent. As did cash purchases – common with investors scooping up foreclosures and short sales at bargain prices.
With 50% of purchasers still using conventional financing (typically requiring 20% down) there seems to be lots of well qualified buyers out there.
FHA and VA now accounts for 1/3rd of purchases. (often first time home buyers as FHA requires a 3.5% down payment and VA requires 0% down payment.) With all the returning military veterans returning from abroad, VA loans will likely just keep rising in popularity.
In the table below you can see the rise of FHA and VA from their virtually non-existence in 2004 to popular choices in April 2011.
Cash purchases have been increasing as well – a large portion of that is likely investors buying up foreclosures and short sales.